While the stock market will generally decline during a recession, there are always going to be some companies that perform well. This is why it's so important to have a diversified portfolio – because even if some of your stocks are taking a hit, others may be doing just fine.
US markets drop 32% on average during recessions and almost always bottom before recession end. Typically, the stock market bottoms four to five months before a recession ends, but RBC's research details that it has bottomed as early as nine months before the end of a recession.
The best recession stocks include consumer staples, utilities and healthcare companies, all of which produce goods and services that consumers can't do without, no matter how bad the economy gets.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months.
In almost every case, the S&P 500 has bottomed out roughly four months before the end of a recession. The index typically hits a high seven months before the start of a recession. During the last four recessions since 1990, the S&P 500 declined an average of 8.8%, according to data from CFRA Research.
Stocks are sometimes up during recessions: The S&P 500 was positive in four of the past ten recessions, including the early 1980s when the Fed was aggressively fighting inflation.
Australia is moving closer towards a recession and its chances of experiencing one in the next year is sitting at around 50 per cent, according to economists.
(NYSE:WMT) are often considered to be money-makers in times of recession. According to McKinsey report published in 2009, recession-resistant industries include consumer staples, healthcare, telecommunication services, and utilities, among more.
Stocks have always bounced back after previous recessions, sometimes quite rapidly.
As shown in the table below, the recovery period for U.S. stocks has been as long as 15 years: In the wake of the 1929 Crash, the IA SBBI US Large Stock Index didn't fully recover until late 1944. For gold bugs, the longest recovery period spanned more than 26 years (from October 1980 until April 2007).
Looking ahead to second-quarter reports, analysts are calling for S&P 500 earnings to fall 6.4% compared to a year ago. Fortunately, analysts are projecting S&P 500 earnings growth will rebound back into positive territory in the second half of 2023.
1991–1992: The early 1990s recession mainly resulted from Australia's efforts to address excess domestic demand, curb speculative behaviour in commercial property markets and reduce inflation.
The Bottom Line
The Great Recession lasted from roughly 2007 to 2009 in the U.S., although the contagion spread around the world, affecting some economies longer. The root cause was excessive mortgage lending to borrowers who normally would not qualify for a home loan, which greatly increased risk to the lender.
In a best-case scenario, the U.S. will likely see a 'soft landing' with low/slow growth across 2023 before picking up in 2024. However, a downside scenario is a real possibility and could see the U.S. enter a prolonged recession lasting well into 2024, as is currently forecast for the UK and Germany.
"In the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Federal Reserve could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end," the investment bank said in a research note.
Geopolitical tensions, energy market imbalances, persistently high inflation and rising interest rates have many investors and economists concerned that a U.S. recession is inevitable in 2023. The risk of a recession rose as the Federal Reserve raised interest rates in its ongoing battle against inflation.
The stock market almost always bottoms well before a recession is over, and, sometimes, before we even know that we're in a recession.
Stock prices nosedive during recessions . Millionaires and billionaires purchase them for pennies on the dollar. Then, once stock prices recover, the value of their holdings skyrocket, causing them to get significantly richer.
Necessity items
Products that are essential for daily life, such as food, cleaning supplies, and personal hygiene products, may be in high demand during a recession as consumers try to cut costs by limiting non-essential purchases.
Recessions are not the time to abandon your investment strategy. Bonds and cash have historically outperformed most stocks during recessions.
Do no withdraw cash. Despite the recent uncertainty, experts don't recommend withdrawing cash from your account. Keeping your money in financial institutions rather than in your home is safer, especially when the amount is insured. "It's not a time to pull your money out of the bank," Silver said.
Tourism and hospitality roles are vulnerable during a recession because consumers change spending habits as the economy shrinks. If a family usually takes a yearly summer vacation, they might rethink that as their companies face looming budget cuts and they question their job security.